Summer Budget: Compliance and enforcement

26 November 1996 was the last time that a chancellor presented the budget of a Conservative government – on that occasion Rt. Hon Kenneth Clarke MP. On 8 July 2015, Rt. Hon George Osborne (who is actually only Clarke’s successor-but-two in the 18 years that have passed) stood up to do the same – not of course for the first time, but for the first time presenting a Conservative Budget. And the extent to which the Liberal Democrats in the coalition of 2010–2015 had a significant influence over compliance and enforcement should not be forgotten. Back in March, following the coalition’s last Budget (as it would turn out to be), the announcements about proposed new criminal powers were actually left to the Liberal Democrat chief secretary to the Treasury, Danny Alexander, to make the following day, complete with a bright yellow Budget box. That seems an eternity ago.

 

 

Well, apparently not much – although it appears that the Budget was very light on detail in relation to compliance and enforcement. We shall possibly have to wait and see what emerges over the next weeks and months – and of course in the Autumn Statement – which after all is less than five months away.

 

Within the first five minutes of his speech, the chancellor announced that he had ‘found £5bn from tackling tax evasion, avoidance, planning and imbalances in the tax system’. 

 

It would be interesting to see how the breakdown between these categories is made up, as there must be a limit to how much more the government can squeeze out of ‘avoidance and evasion’.

 

Within the next five minutes we had heard some more specifics as the chancellor turned to ‘combatting tax evasion, avoidance and aggressive tax planning’.

 

‘We’re boosting HMRC’s capacity with three quarters of a billion pounds of investment to go after tax fraud, offshore trusts and the business of the hidden economy, tripling the number of wealthy evaders they pursue for prosecution – raising £7.2bn in extra tax’. Then, a minute or so later, he added: ‘And we’re going to add tough new penalties to our general anti-abuse rule, and name and shame serial users of failed tax avoidance schemes.’ 

 

But, after all that excitement, there was relatively little else. And a scour of the associated documents did not reveal very much either.

 

 

In terms of what we already knew, the reference to penalties for the GAAR and the naming and shaming of avoiders (which had already been consulted upon) was announced in the March Budget for inclusion ‘in a future Finance Bill’. Further provisions against serial avoiders which take this a stage further, will be the subject of a more detailed consultation, to be published over the summer. A special reporting requirement is also promised, as is a surcharge on those whose latest tax return is inaccurate as a result of a ‘further defeated avoidance scheme’. There are also the naming and shaming proposals, a widening of the ‘promoters of tax avoidance schemes regime’ to include those whose schemes are regularly defeated, and a consultation on the detail of the proposed GAAR penalty. So we can expect a busy summer responding to consultations, followed by draft legislation in the Autumn Statement and – finally – inclusion of these provisions in the Finance Bill 2016. 

 

One of the ‘signature’ features of the March Budget was the announcement of the abolition of the self-assessment system for individuals and small businesses; and its replacement with a system of ‘digital tax accounts’, under the banner of ‘making taxes easier’. There was no reference to this in the chancellor’s speech this time, but a reference was included – buried away (somewhat bizarrely) under the heading of ‘Environment and energy taxes’ – in HMRC’s Budget Overview. This announced that the government will publish a ‘roadmap’ by the end of the year (presumably as part of the Autumn Statement), which will show the timetable for ‘transforming tax administration’ over the course of this Parliament. Discussions with ‘key stakeholders and delivery partners’ will begin over the summer. So, yes, the abolition of self-assessment will definitely be going ahead, but there is not much more detail yet. Watch this space.

 

We were also reassured that the proposals for closure of a ‘single issue’ on a closure notice are still alive and well; and that HMRC will respond ‘during the summer’ to the consultation exercise that took place over the winter. At that stage, we shall learn whether it has listened to representations encouraging it to match the power with a commensurate right on the part of taxpayers to apply to the tribunal for the closure of a single issue.

 

Following the consultation on the implementation of the common reporting standard (CRS) in the course of 2014, the results of which were published in March 2015, the forthcoming Finance Bill will include requirements on the part of financial institutions, tax advisers and other professionals to notify their customers about the CRS, the penalties for tax evasion that might result from it, and opportunities for disclosure.

 

The direct recovery of debts legislation (as amended following consultation, with the relevant draft legislation having been published for consultation around the last Autumn Statement) will also be included in the forthcoming Finance Bill. This will contain the necessary safeguards previously outlined following initial consultation; notably, a county court appeal process and a face-to-face visit for every debtor before they are subjected to this measure.

 

 

The proposed new criminal offences of strict liability for offshore evasion, and the offence of ‘corporate failure to prevent tax evasion’, announced by the chief secretary in March, were the obvious ‘elephants in the Budget’. The strict liability offence has appeared to do a ‘disappearing act’ once before in its gestation. As I noted (Tax Journal, 27 March 2015), the implementation of these provisions would ‘presuppose that HMRC will have the funds to put behind them, particularly in terms of mounting criminal investigations, which are notoriously expensive and resource intensive’.

 

The answer to that is probably provided by one of the items in the ‘genuinely new’ category below. In short, we can expect a further – and more detailed – consultation over the summer or autumn (possibly as late as the autumn statement).

 

 

Not a great deal, is the answer – except for the rhetoric in the chancellor’s speech, which suggested that the overall war on enforcement continues apace.

 

The announcement of a £750m investment in HMRC (presumably over the life of the Parliament) to raise £7.2bn in extra tax was the signature announcement. Of this, £60m (by 2020/21) will be specifically targeted at ‘serious and complex tax crime particularly focusing on wealthy individuals and corporates’. This, I suspect, provides the answer to the question as to what has happened to the two proposed new offences. There is the money earmarked to make them effective. The wishes of Margaret Hodge, late of the PAC (if not of Parliament itself), for more ‘red blooded’ prosecutions looks as if it might be granted.

 

HMRC’s powers to acquire data from intermediaries and electronic payment providers will also be extended, so as to enable it to crack down further on the ‘hidden economy’. Again, a fairly ambitious target of Finance Bill 2016 is set out for this, which again suggests a consultation over the summer.

 

Finally, £300m will be invested over the course of the parliament to tackle non-compliance by small and medium sized businesses, public bodies (an interesting target, and an increasing feature of HMRC’s energies) and – unsurprisingly – ‘affluent individuals’. The war on non-compliance by the ‘mass affluent’ looks set to be a feature of this Conservative government, as it was of the coalition.